The stock market has been in a slump lately as prices continue to fall. The S&P 500 has fallen by more than 16% since the beginning of the year, and the Nasdaq officially entered bear market territory after falling nearly 25% over the same period.
If you’re holding money in the stock market, it can be nerve-wracking to see your portfolio sinking day after day. But how long could it be before stock prices start to recover? There is no easy answer to that question, but there are a few things to keep in mind.
1. The stock market is unpredictable
No one knows for sure how the stock market will fare in the coming weeks. Some experts predict that it could be months before the market starts to recover, and until then stock prices could continue to fall.
That said, it’s impossible to know exactly what will happen. Past performance is not necessarily indicative of future performance, and this downturn may not turn out like previous slumps. That means that even the experts cannot predict with 100% certainty how long this downturn will last.
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2. A long-term outlook is key
While no one can say exactly what will happen to the market in the short term, there is more certainty when it comes to long-term performance. The stock market has experienced dozens of corrections and crashes over the years. In fact, the S&P 500 has fallen by at least 20% on 21 separate occasions since 1929. That’s a significant drop every 4.5 years on average.
In other words, breakdowns like this are normal. But more importantly, they are temporary. While there are never any guarantees when it comes to investing, it is highly likely that the market will also recover from this downturn.
While it’s uncertain how long this downturn will last, keeping a long-term outlook could make it more bearable for investors. No matter how bad things look, they will eventually get better.
3. Setbacks aren’t all bad
To be clear, stock market declines are hard to bear and it’s perfectly normal to be concerned about your investments. However, there is one advantage: investing is much more affordable.
When the market is in a downward spiral, stock prices are lower. That means it could be a smart opportunity to make high-quality investments for a fraction of the price. If the price of a particular stock has fallen by 25%, for example, instead of thinking it will lose 25% of its value, consider it a 25% discount.
Since market declines are temporary, most stocks will see their prices bounce back. By investing now when these investments are essentially approved, you will reap the rewards when the market inevitably recovers.
While it can be nerve-wracking to throw more money into the market when prices plummet, keep in mind that even famed investor Warren Buffett isn’t afraid of a downturn because it’s opportunities to buy at a discount. As he puts it, “Opportunities don’t come often. When it rains gold, put the bucket outside, not the thimble.”
The stock market has had a difficult year and no one knows for sure how long it will be before prices start to recover. Keeping your focus on the long term and trying not to get too caught up in the day-to-day moves will make this volatility easier to bear.
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